Fears of mobile termination rate review

The telecommunication sector regulator, Nigerian Communications Commission (NCC), has given the green light for a review of call termination rates. This is coming at a time inflation and recession are dealing heavy blows on consumers’ disposable income. The NCC says it is going to be a win-win situation for industry stakeholders, LUCAS AJANAKU reports.

When the economy officially degenerated into recession, no economic analysts envisioned that its effect would be far-reaching as it is now. To many, it is better imagined than experienced. The viable sectors that were thought should be instrumental to pulling the economy out of recession are also not spared. Not even the telecoms sector, one of the major sectors lifting the gross domestic product (GDP), is spared.

Mobile Network Operators (MNOs) are at the receiving end of harsh economic realities on ground. The subscribers are also caught up in the web of economic hardship.

Nigeria’s rising inflation rate, which was put at 18.7 per cent at the last released data by the National Bureau of Statistics (NBS), is making the country hostile to foreign and local investors.

A layman on the streets does not need the NBS to remind him that the economic recession is ravaging every critical sector like wildfire.

Interconnection cost is a major component of network service providers. The United Nations (UN) specialised agency for information communications technology (ICT), International Telecommunications Union (ITU) defines interconnection as a set of legal rules, technical (operational), and commercial arrangements between network operators that enable customers connected to one network to communicate with customers on other network.

Simply put, interconnection can be defined as the linking of telecoms networks for customers of one network to communicate with customers of another network. Based on ITU survey, interconnection is rated by many countries as the single most important problem in the development of a competitive market for telecoms.

Telecoms regulatory agency such as the Nigerian Communications Commission (NCC), take charge of interconnection as a result of its strategic role in drafting policies. It is seen as a strong regulatory tool in stabilising the industry, by ensuring effective competition; profitability and appreciable quality of services (QoS). The NCC uses interconnection policy to mandate telcos to provide their network infrastructure for mutual usage. It supervises interconnection because big telcos can come up with terms that are not favourable to the smaller/new entrants operators, such as denying them total access; giving terms that are tedious; degrading interconnection quality or setting arbitrarily exorbitant prices.

Interconnection rests on a tripod stand, which are legal, technical and commercial. The commercial aspect is the critical denominator of the three, because it has to do with sharing of revenues generated via tariffs, when subscribers make use of telecoms services that go beyond their individual networks.

The NCC in conjunction with telcos, deploy cost based study in order to determine mobile voice termination rate, also known as Interconnection Rate, for a particular period, which is referred to as a Regime.

ITU recommended that, in determining interconnection rate (IR), it should be cost-oriented and reflect the cost of providing services that are required to unbundle the networks. Unbundling, in clear terms, means the charge or tariff made separately, rather than part of a package. It is only the part of the network that is connected with interconnection operations of the system that is charged.

In 2003, the NCC had its first intervention in IR in the nation’s telecoms industry. Around that period, the full liberalisation of the sector was still at its infancy; therefore, the needed data for a detailed cost study was not obtainable from the evolving sector.

The NCC, therefore, used international benchmark to set the termination rates for the country’s telecoms industry then.

In 2006, the Commission conducted its first detailed cost study by using the Long Run Incremental Cost Model (LRICM), which was used to determine the cost of terminating services by an efficient operator. The model prevented the carriers from transferring the cost of inefficiencies to one another and invariably the end users.

IR was reviewed in 2009 after a thorough cost study. This brought about a new regime with the adoption of asymmetric regulation on a glide path in recognition of differing costs of terminating services on the network of big operators, small operators and new entrants.

Progressively in 2013, the NCC continued with the asymmetrical regulation while the last cost profile of the 2013 regime had a uniform rate of N3.90/minute for existing operators and small/new entrant operators effective April 1 2016.

The NCC explained that it was motivated to conduct this periodic review as a result of dynamic nature of the telecoms sector, which changes with other economic and technological factors.

The international aspect of interconnection rate, is called International Terminal Rate (ITR). This rate is the mobile voice termination rate charged by carriers across the border. This is required when a customer wants to establish an international call, which requires the services of telecoms infrastructure of carriers in other countries, outside the jurisdiction of the local network. The termination rate of $0.03/minute is the amount the network service providers in the country receive for terminating inbound international traffic.

According to data obtained from website of ITU, which compared IR in African countries after a well-articulated survey and research, one of the results of the survey observed that Nigeria has one of the lowest ITR on the continent. Its ITR is put at $0.03/min for international in-bound calls.

It is clear that Nigeria has one of the lowest ITR in the continent. This has posed a huge revenue loss challenge to carriers and has invariably created enormous loss of hard currency to the Federal Government. In fact, the low termination rate has made the telcos to be perpetual net payers to their overseas interconnecting partners.

Furthermore, certain changes have occured in the local macro-economic situation. They include double digit inflation rate, high internet rate and foreign exchange (forex) fluctuations. In order to avert a major cash flow challenge in the industry, the NCC quickly carried out a benchmark study and established an interim ITR at N24.40/minute.

In addition, one of the challenges bedevilling telcos is epileptic power supply. Electricity generation and distribution crisis have worsened in the past few months, falling from the relatively low grid generation of about 4,000 megawatt (Mw), to less than irregular 2,000Mw. The nation was thrown into darkness on several occasions when the national grid experienced zero megawatts.

During these periods of acute electricity crisis, telcos ensured that services were uninterrupted for a minute. They were able to accomplish this by resorting to using, at least, two generators per base transmission station (BTS). This consumes billions of naira to maintain on monthly basis.

South Africa that has similar ITR with Nigeria does not experience electricity crisis that has ravaged the nation’s local industrial sector over the decades. Conservatively, South Africa generates over 40,000Mw for a population that is slightly above 50 million, while Nigeria with over 180million people, struggles to maintain a paltry 5,000Mw.

Telcos are also battling the challenges of infrastructure disruption and vandalism, which are security related issues, unconnected with the mandate of the operators.

Some other economic factors that have made IR of N3.90k/min and $0.03/min, for National Terminal Rate (NTR) and IITR, unsustainable, are the skyrocketing forex rate, high inflation rate, interest rate and ease-of-doing business.

Depreciation of the naira has exacerbated the plight of telcos, who terminate their calls in the country. Most of the telecoms equipment needed for operations and network expansion are imported, using forex.

In 2013, when the current IR regime was introduced, exchange rate was less than N170 to dollar AT THE Bureau de Change (BDC). But today, one dollar goes for almost N500 in the parallel market. Inflation has risen from single digit ratio in 2013, to above 18.7 per cent. Interest rate for bank loans has gone up to as high as between 25 to 30 per cent. Nigeria’s GDP growth rate nosedived from 6.7 per cent in 2013 to negative indices, which is one of the reasons the economy slipped into recession.

Under 2013 determination regime, which birthed existing interconnection rates, Nigeria’s telecoms industry experienced visible growth, which propelled the subscribers’ base to over 100 million active lines. With biting recession, coupled with lower interconnect rates, it has become obvious that telcos are living on borrowed times.

The current termination rates can no longer sustain the funding of their operations. This is also affecting the QoS and capacity for expansion drive.

In order to stem the ugly tide, the NCC has intervened by holding Stakeholders’ Forum on cost based study for the determination of mobile voice termination rate for the sector.

The essence is to carry along key shareholders and investors in the cost based study that will usher in new determination regime for interconnection rates.

The NCC said it would harness the window provided by the study to properly scrutinise the advent of grey market activities in the telecoms industry. Grey market activities include, but not limited to call refilling, call masking, sim-box and internet-based calls such as WhatsApp, Skype, IMO Video calls, and so on, that do not yield revenues to the telcos.

The NCC has employed reputable and world renowned auditing firm, Pricewaterhousecoopers (Pwc), to handle the study. The firm is to, among others, carry out an impact assessment on the subsisting interconnect regime; identify shortfalls on the subsisting interconnection rate regime and provide workable solutions; determine if there is need to have different termination rate for national/domestic and international traffic.

Pwc will also determine the mobile TR for voice services, using appropriate cost modelling techniques for new entrant (s)/small operators and existing/big operators; review ITRs in other jurisdictions with similar socio-economic environment with Nigeria and its implication for the determination of local ITR.

It is also expected to develop measures to reduce or eliminate grey markets in the telecoms industry; determine (if necessary), in-bound ITR, taking into consideration relevant socio-economic and technical factors and, using appropriate cost modelling techniques.

The result of the study will help the NCC arrive at the new interconnection rate regime, which will shape the future of the industry. Speaking during the stakeholders forum, the NCC Chief Executive Officer, Prof. Umaru Danbatta, said: “It is very important we ensure that interconnection services are not only fairly priced and non-discriminatory, but should reflect the cost of providing such services in the market. It is in this regard that the Commission has decided to review the rates set in its 2013 Determination in the light of current market realities.”

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